Euro area Finance Ministers will resume work on the finalisation of the banking union on Thursday 11 June. They will begin the procedure for electing a new Eurogroup president, could unblock new aid to alleviate Greek debt servicing, and will discuss the ‘euro area’ component of the European Recovery Plan.
With regard to the banking union, “no operational conclusion” is expected from the ministers’ discussion, a European source indicated on Wednesday 10 June. Nevertheless, the source hoped that renewed “political pressure” would make it possible to relaunch the work in this area - a roadmap for finalising the banking union and reform of the European Stability Mechanism (ESM) - which has not made progress since January because of the Covid-19 pandemic (see EUROPE 12405/22).
Along with the crisis, “all of the issues that divided us before are still there”, the source added.
Among the issues to be addressed are criteria set before the coronavirus pandemic, such as the reduction of non-performing bank loans (NPLs), in order to convert the ESM into the backstop for the Single Resolution Fund, the financial arm of the banking union’s resolution component, by the end of 2023. According to this source, “if we insist on old numerical thresholds, then we can very likely say goodbye to early introduction of the backstop”. The source added that even though the political decision to anticipate the backstop has been taken, the deadline for accomplishing this is approaching, as it requires ratification by the Nineteen of the ESM reform, the euro area rescue fund, which is currently blocked by Italy (see EUROPE 12384/1).
On the other hand, there is no consideration of creating a ‘bad bank’ to manage NPL loans at the European level, even though the ECB has started work in this area, according to Reuters.
The discussions on the banking union will be illustrated by the steps taken by the ECB, as the single supervisor of large banking groups, and the Single Resolution Board, the European authority responsible for dealing with large banks in difficulty.
On Wednesday, the OECD predicted that the euro area is heading for a 9.1% contraction in GDP in 2020, followed by a 6.5% recovery in 2021. If there is a second wave, the decline would be more marked this year (-11.5%) and the recovery more modest the following year (+3.5%).
Presidency of the Eurogroup. Ministers will acknowledge the decision of their Portuguese counterpart, Mário Centeno, to step down from his ministerial post and not to seek a second term at the head of the Eurogroup (see EUROPE 12502/16).
They will begin the procedure leading to the election in early July of Mr Centeno’s replacement. The aim is to reduce the list of candidates to two persons before proceeding to a vote and for the candidate with the fewest votes to withdraw to allow the future President of the Eurogroup to be elected.
Greece. Ministers will be briefed on the sixth monitoring report on Greece’s post-macroeconomic rescue package, which welcomes the country’s serious fiscal stance and the continuation of reforms (see EUROPE 12491/13).
On this basis, they could approve the release of a third tranche of aid, this time of €748 million, which will alleviate the servicing of Greek public debt. This amount corresponds to the profits made by the central banks of the euro area countries on the purchase of Greek securities in the context of the ECB’s SMP operation.
Ministers will also be briefed on the results of the latest fiscal monitoring missions for the post-plan macroeconomic rescue packages in Cyprus and Spain.
Finally, due to the impact of the pandemic on work at the European level, the Eurogroup will adopt a revised work programme from now to October.
European Recovery Plan. At the EU-27 level, ministers will discuss the Next Generation EU European Recovery Plan, which is accompanying the revised proposal for the 2021-2027 Multiannual Financial Framework (MFF) (see EUROPE 12502/22).
The goal is to explore options that will take the ‘euro area’ component of the recovery plan into account, notably in the framework of the ‘European Semester’ budgetary process. This includes an annual recommendation for fiscal and socioeconomic policy at the euro area level.
It should be noted that the annual meeting of the ESM’s Board of Directors will take place on the sidelines at the Eurogroup. (Original version in French by Mathieu Bion)